The taxpayer in this case sought judicial review of the CRA’s refusal to waive penalty tax for RSP over contributions.
“[9] … I want to say that taxpayers have a duty to put their best case to a delegate when seeking relief under subsection 204.1(4) of the ITA. They must provide salient facts in their favour. They cannot expect material they fail to file will be accepted later by this Court on judicial review. Judicial review takes place on what was before the decision-maker, and does not generally consider additional filings made afterwards.”
Subsection 204.1(2.1) imposes a penalty tax of 1% per month on the amount of an over contribution to an RSP. CRA may waive the penalty tax if the taxpayer can show that [204.1(4)]:
“(a) the excess amount or cumulative excess amount on which the tax is based arose as a consequence of reasonable error, and
(b) reasonable steps are being taken to eliminate the excess”…
Justice Brown relied on the following principles to dismiss the taxpayer’s judicial review application (at paragraph 20, citing an earlier FC case):
“the interpretation of “reasonable error” should impose the same requirements as a due diligence defence, as defined by the Federal Court of Appeal in Corporation de l’École Polytechnique v. Canada, 2004 FCA 127(CanLII) at paragraph 30.
…
[16] Innocence and lack of intent are not determinative, however, of reasonableness. …
[17] … It was up to the applicant to ensure that she did not make excessive contributions to her RRSP and her lack of understanding of the law is not a reasonable error.”
Here, Mr. Levenson had relied on CRA notices of assessment telling him how much RSP deduction room he had. But he had not accurately reported to CRA all his RSP contributions; so having the wrong information from him, they gave him the wrong amount of unused RSP deduction room. Nonetheless, he insisted that he was entitled to rely on CRA’s error and that he was not responsible for it. The court disagreed, of course.
This decision should not discourage you from relying on CRA’s RSP calculations on your notices of assessment:
“[29] … generally speaking, taxpayers are entitled to rely on their Notices of Assessment to determine RRSP contributions, a point noted by Justice Simpson in Kerr v Canada (Attorney General), 2008 FC 1073 (CanLII) …”
The court agreed that Mr. Levenson had removed the over-contribution as soon as possible and was only delayed because of CRA’s error, so that “the delegate’s decision on “reasonable steps” per paragraph 204.1(1)(4)(b) [was] outside the range of possible, acceptable outcomes”. But because CRA’s discretion involves a two-part test and Mr. Levenson failed the first test, the CRA error did not help him.
Levenson v. Canada (Attorney General), 2016 FC 10 (HS Brown)